Delaware v. Pennsylvania – The MoneyGram decision favors application of the place of sale rule

On Feb. 28, 2023, the U.S. Supreme Court (Court) in a unanimous decision handed down its decision that owner-unknown MoneyGram checks when dormant are reportable to the state in which the check was sold and not to the state of incorporation of the issuing entity. This decision cleared way for the 30 states that brought the suit against Delaware to claim the $300 million in abandoned MoneyGram checks that had previously been reported to Delaware.

What is unclaimed property?

Unclaimed property is typically defined as intangible property that is held, issued, or owed in the course of a holder’s business that has gone unclaimed for a specific period of time by the rightful owner. Once an item has remained unclaimed by the owner after a statutorily set time has passed, state laws typically require that the item be reported to the state. Over a series of cases, the Court has provided two rules regarding which state is entitled to unclaimed property. If a company has the name and address of the owner, it is reportable to the last-known address of the owner as shown on the company’s records. If the property is owner-unknown, it is reportable to the state of incorporation of the company holding the property (the Holder)  

Facts before the Court

In the case before the Court, MoneyGram did not have a regular business practice to keep records of creditor addresses for the two products at issue in the case, Agent Checks and Teller’s Checks (together, “Disputed Instruments”). While owner-known items would usually be reportable to the state of incorporation; (in MoneyGram’s case, Delaware), in 1974 Congress passed the Disposition of Abandoned Money Orders and Traveler’s Check Act (Federal Disposition Act or FDA), which provides that money orders and similar written instruments are reportable to the state in which the instrument was purchased. The question before the Court was whether or not the Disputed Instruments were subject to the FDA.  The Court appointed a Special Master to provide an analysis regarding whether the Disputed Instruments would fall under the FDA. The Special Master’s initial opinion was that they would fall under the FDA and would be reportable to the states in which the sales took place. However, in an unusual circumstance, later partially reversed his opinion after oral arguments and found in part for Delaware.

The Court’s decision

In her opinion, Justice Jackson held that a Disputed Instrument, like a money order, was a “prepaid financial instrument used to transmit a specified amount of money to a named payee”, and they had substantially similar traits and fulfilled a similar function. As a result, it was determined that the Disputed Instruments should fall within the “similar written instruments” clause of the FDA. In addition, Justice Jackson also noted that the FDA was enacted in response to an earlier Court decision, Pennsylvania v. New York, 407 U.S. 206 (1972), where the Court held that owner-unknown money orders follow the standard rule and are reportable to the Holder’s domicile. The loosing states lobbied Congress to pass the FDA, in part to prevent a “windfall” to the state of incorporation by instead adopting a place-of-purchase rule that would distribute the escheated property as a matter of equity among the states. Justice Jackson held that allowing Delaware to claim the abandoned Disputed Instruments at issue in the case would likewise result in the type of “windfall” that the FDA was designed to prevent.

What the Court did not address

The Court did not feel the need to opine on whether the Disputed Instruments were money orders, but instead focused on whether they were sufficiently similar to fall under the FDA. Having found that they did, the Court declined to answer this question. In addition, Pennsylvania requested the Court to reconsider the current escheatment rules regarding owner-known and owner-unknown property if it was held that the Disputed Instruments were found to be reportable to Delaware. Justice Jackson noted that in light of the conclusions in the case, the question was moot.

Next steps

While the Court’s decision in the case settled the legal question of whether or not the Disputed Instruments are subject to the FDA, the case is not over.  Delaware has collected $300 million representing Disputed Instruments that were found to be reportable to other states. The Court has instructed the Special Master to review the facts and determine how much money needs to be transferred between the states. Given the significant amount of money at issue, the question of damages could be as interesting and complex as who was entitled to the funds in the first place.

Please do not hesitate to reach out to any member of the Baker Tilly unclaimed property management team if you have any questions about this case or any other UP concerns that may impact your company.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely.  The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.